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With today's low interest rates, the rule of thumb is that one would qualify for a mortgage that's about 5-6x one's annual income. And I know people who have to do that, because the cost of housing is so high where they live. For those of us who don't live in such high cost housing areas, I know families who bought right up to the max, and I know people like me, who bought houses that were about 1-2x household income, because I am financially cautious, and an average house was enough for my family.
It's really no different from cars. Some people buy big fancy, with big loans, some buy outright used cheap, with no loan. Some people die in the black, leaving money for their heirs, some die deep in the red, and the entire house of cards collapses with their death, leaving the heirs a messy load of debt. Some of those people even make it right to the top of the heap on a messy load of debt - like our president. It's all in how people choose to live their lives.
Yeah, it absolutely depends on where you live. My sister lives in the SF Bay Area, so most people end up kind of near the max of what they can afford just to get a place where they can life.
I live in a mid-range area. I overheard someone in the gym talking just this morning about how people in this area with larger homes have to drop the prices by hundreds of thousands to sell them because the upkeep of these larger houses is considerable. She said the taxes and upkeep was $30K a year on her house. Younger folks aren’t willing to spend that sort of money on keeping up a house. That is what you have to consider when buying the maximum you can afford. Once you get the home, the costs can still be considerable even without a mortgage. If someone can get a $150K home that is in a good neighborhood, comfortable for everyone in the family, then why on earth would they spend $300K?
I live in Indiana where homes are relatively cheap. I've ran the numbers for a couple who makes 100k a year total, which should be easy in Indiana and has $1000 in monthly debt. So maybe 2 car payments and credit cards. Then I put in a 10k downpayment. Well the mortgage came out to 300k, which is a nice home! That would buy a nice home in Indiana! Help me understand what I'm missing.
Firstly, because you'd have to live in Indiana.
Secondly, that assumes that both spouses make $50K, and that they have no kids who have childcare costs. You're also assuming no student loan debt, and that can be significant. There are lots of folks out there who don't even make $50K/year.
$300K won't get you much of anything where I live now.
Seems like it is easy for most household to buy and qualify for a 300k home, so why don’t they?
Why don't they? Well there are about one hundred reasons why any particular married couple doesn't. Start here: they don't CHOOSE to at that moment in their lives.
Another question almost but not equally pointless:
Why should they?
Really, OP why do you ask questions like this? You seem to view the world very simplistically: If I'd do something everyone else should.
Last edited by Parnassia; 01-19-2020 at 03:19 PM..
What you are missing is 100k is a pretty good income in Indiana, you don't have to spend 300k to buy a first house there, and banks will loan you enough money to keep you broke after making the payments.
I live in Indiana where homes are relatively cheap. I've ran the numbers for a couple who makes 100k a year total, which should be easy in Indiana and has $1000 in monthly debt. So maybe 2 car payments and credit cards. Then I put in a 10k downpayment. Well the mortgage came out to 300k, which is a nice home! That would buy a nice home in Indiana! Help me understand what I'm missing.
20% down payment on a $300K house is $60K. $10K is like 3.3% if my math is right.
So you will have to pay for mortgage insurance. You have closing costs that can add another 5 to 10K.
On a $300K home the monthly mortgage for 30 years is about $1425 if you have good credit and can get a good rate.
You bring in 8,333 a month so as long as the insurance and taxes are not high you should still qualify.
But depending on how much your car payments and minimum credit card payments are too.
If your $1000 a month payment and insurance is 100 a month and property taxes are 300 a month plus mortgage interest is added then if you go over $2780 that's your 33% debt to income ratio. But the good news is iif homes are cheap there you can find a $250K home instead.
Most married couples do not make $100K and don't live in a place where you can find a nice home with low taxes for 5300k.
I live in Indiana where homes are relatively cheap. I've ran the numbers for a couple who makes 100k a year total, which should be easy in Indiana and has $1000 in monthly debt. So maybe 2 car payments and credit cards. Then I put in a 10k downpayment. Well the mortgage came out to 300k, which is a nice home! That would buy a nice home in Indiana! Help me understand what I'm missing.
Just because a couple qualifies for a large mortgage doesn't mean that it's wise to spend up to the hilt on housing (or anything else for that matter).
All it takes when living up to and beyond one's means is one major misstep, prolonged unemployment of one spouse, or a health crisis of some sort and the entire house of cards comes crashing down. I've seen it happen and it's not pretty.
When I was married, my former husband and I managed our money in such a way that we lived mostly on one income and saved the other. (We had no debts outside of our mortgage loan, which made us outliers in our somewhat affluent exurb where three hundred to four hundred grand will buy quite a house on a decently sized lot in a cul de sac neighborhood.)
Even as a single homeowner, I still purchased less house that I "qualified" for so that I could still mostly live on one biweekly paycheck and bank the other.
Living so close to the bone scares the bejeezus out of me.
We qualify for a large mortgage. Larger than we would ever consider.
We qualify for a spiffy luxury car or two. We won't be doing that.
We qualify for nicer furniture. With "18 months NO INTEREST." Nope. No, thanks.
We qualify for platinum/titanium/cesium/toxic levels of credit cards. Huh-uh. Have a nice day.
We qualify for.... blah, blah, yadda, yadda....
The reason some people don't worry about their next move is because they don't buy or grab everything in sight that they "qualify for."
I tell those buyers who want to buy on a one income qualification, rather than to max out, "Smart. Your home should be your shelter from the storm, not a burden and a worry every month."
But, I am truly aware of some markets where buyers are under terrible stress to find housing they can afford.
I'd worry about someone losing a job, or a serious sickness. Just because the numbers add up in your favor, doesn't mean it factors in real life issues.
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